Overview of entry strategies for India market

India has become a favoured destination, not only for foreign investment but also for doing business, and enduring foreign exchange management laws freely permit investment in almost all sectors

Various economic and regulatory reforms introduced by the government facilitate ease of doing business, ensuring the economy’s continuous growth despite challenges brought about by the pandemic. Consequently, India jumped 79 positions in the World Bank’s Ease of Doing Business Ranking 2020, from 142nd in 2014 to 63rd in 2019. Overseas investors intending to do business in India have the following entry structure options:

WHOLLY OWNED SUBSIDIARY

Overseas investors may enter the market by establishing a wholly owned subsidiary in the form of a private or public limited company. The foreign exchange management laws permit overseas investors to set up 100% subsidiaries in most sectors including manufacturing, e-commerce and IT under automatic route, without regulatory approval. Wholly owned subsidiaries are established and regulated by the provisions of the Companies Act, 2013, and rules made thereunder.

A wholly owned subsidiary is permitted to engage in all business activities specified in its charter documents, and is treated as a domestic company under Indian tax laws, eligible for all tax deductions as well as any other benefits provided to any other Indian company. With digital initiatives, the Indian government has fast-tracked the incorporation process.

Through a one-step incorporation process, overseas investors can obtain multiple registrations or approvals including director’s identification number, name availability, incorporation certificate, permanent account number, tax deduction at source number, provident fund, employee state insurance, and goods and service tax registration.

Simpler and comprehensive incorporation procedures have been introduced, significantly reducing the time taken to establish a wholly owned subsidiary. As an added incentive, no incorporation fees are charged for companies with nominal capital of less than or equal to INR1.5 million (USD19,000).

EQUITY PARTICIPATION

Foreign entities may also choose to set up a joint venture company by forming a strategic alliance with an Indian partner. Joint venture has proved to be one of the most preferred options (after wholly owned subsidiary) for overseas investors seeking to enter the Indian market. Foreign investors generally choose an Indian partner in the same field or area of activity, bringing synergy to their India business plans. The government initiatives applying to wholly owned subsidiaries are also available to joint ventures.

LIMITED LIABILITY PARTNERSHIPS (LLPS)

An LLP is an alternative form of business entity that combines benefits of a limited liability company with the flexibility of a partnership. The foreign exchange management laws permit foreign investment in LLPs, which operate in sectors where 100% foreign investment is permitted under the automatic route without regulatory approval.

LLP entities are formed and registered under the Limited Liability Partnership Act, 2008, and rules made thereunder. To facilitate ease of doing business, the Indian government has centralised the LLP incorporation process, bringing it at par with companies formed under the Companies Act, 2013.

BRANCH OFFICE

Foreign companies interested in exploring Indian markets can set up a branch office with prior approval of the Reserve Bank of India (RBI) if they have a profit-making track record during the preceding five financial years in their home country, and a net worth of at least USD100,000 or equivalent. A branch office is permitted to undertake the following activities:

• Export or import of goods;
• Render professional or consultancy services (other than practice of the legal profession in any matter);
• Carry out research work in which the parent company is engaged;
• Promote technical or financial collaborations between Indian companies and the parent or overseas group company;
• Represent the parent company and acting as a buying or selling agent;
• Render services in the IT and software development sector;
• Render technical support to the products supplied by parent/group companies; and
• Represent a foreign airline or shipping company.

But a branch office is not allowed to undertake retail trading, manufacturing, or processing activities.

LIAISON OFFICE

Foreign companies interested in exploring Indian markets can set up a liaison office with the prior approval of the RBI if they have a profit-making track record during the immediately preceding three financial years in their home country and net worth of at least USD50,000 or equivalent, half the requirement of a branch office.

A liaison office is permitted to undertake the following activities:

• Represent the parent company or group companies;
• Promote export or import from and to India; and
• Promote technical or financial collaborations between the parent or group companies and Indian companies.

A liaison office primarily acts as a channel of communication between the principal place of business or head office and Indian entities, and cannot earn income in India. All expenses of the liaison office should be met by inward remittances from the head office through normal banking channels.

PROJECT OFFICE

Foreign entities executing a specific project in India can set up a project office to represent their interest in India under the general permission route, and can continue to operate until completion of the specific project.

A project office cannot undertake or carry on out any activity other than that relating to the specific project for which it is established. Setting up of a project office by foreign non-governmental organisations, non-profit organisations, or foreign government bodies or departments requires prior approval of the RBI.

SINGHANIA & PARTNERS

P-24, Green Park Extension,
New Delhi-110016, India
Email: contact@singhania.in

www.singhania.in